Asset A has an expected return of 10% and a standard deviation of 7%. Asset B has an expected return 8% and a standard deviation of 12%. Assume that the return of the two assets are uncorrelated. A rational risk averse investor would A. Never invest his entire wealth in asset B B. Invest his entire wealth in asset A if he is very risk averse C. Invest his entire wealth in asset B, since asset A is dominated D. Always invest in a balances portfolio containing 50% of asset A and 50% of asset B, provides that the correlation coefficient is equal to one
Asset A has an expected return of 10% and a standard deviation of 7%. Asset B has an expected return 8% and a standard deviation of 12%. Assume that the return of the two assets are uncorrelated. A rational risk averse investor would A. Never invest his entire wealth in asset B B. Invest his entire wealth in asset A if he is very risk averse C. Invest his entire wealth in asset B, since asset A is dominated D. Always invest in a balances portfolio containing 50% of asset A and 50% of asset B, provides that the correlation coefficient is equal to one
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Asset A has an expected return of 10% and a standard deviation of 7%. Asset B has an expected return 8% and a standard deviation of 12%. Assume that the return of the two assets are uncorrelated. A rational risk averse investor would
A. Never invest his entire wealth in asset B
B. Invest his entire wealth in asset A if he is very risk averse
C. Invest his entire wealth in asset B, since asset A is dominated
D. Always invest in a balances portfolio containing 50% of asset A and 50% of asset B, provides that the correlation coefficient is equal to one
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